New
Avison Young research shows that the North American and U.K. industrial real
estate markets are operating in a position of relative strength.
While
local, regional and global economic headwinds continue to impact commercial
property markets, the industrial sector is operating in a position of relative
strength, evolving rapidly as owners and occupiers alike respond to changing
demand. Traditional buildings are being viewed in a different light as they
compete with new, innovative facilities catering to the burgeoning e-commerce,
logistics and distribution sectors.
Our Spring
2016 North America and U.K. Industrial Market Report
https://avisonyoung.uberflip.com/i/671728-ayspring16namericaukindustrialreportmay12-16final-pdf
, released today, provides in-depth analysis of
the industrial markets in 51 North American and U.K. metropolitan regions.
Of
the 51 industrial markets, vacancy declined in 38 markets, increased in 12, and
remained unchanged in one, during the 12-month period ending March 31, 2016.
U.S.
fundamentals continue to rebound; the Canadian market’s diversity appears to be
buffering the setback in the resource sector; and Mexico City and the U.K. are
both seeing strong demand for logistics and distribution space.
First-Quarter 2016 Canadian
Industrial Market Highlights:
·
Demand
for industrial space is robust, with 12-month absorption totalling almost 25
million square feet (msf) – nearly double the total for the previous 12-month
period. Toronto led all markets by a wide margin, followed by Vancouver and
Edmonton, as the East outpaced the West.
·
Ten
of the 11 Canadian markets surveyed display single-digit vacancy rates (with
four markets posting rates below the national average) compared with seven one
year earlier. Western markets combined for a modest vacancy increase (+10 bps
to 4.2%) during the past year, compared with a decline by Eastern markets (-80
bps to 3.8%).
·
Year-over-year,
vacancy declined in five markets and increased in six. Toronto claimed the
country’s lowest rate (2.7%), Halifax the highest (11.9%) and greatest swing
(+200 bps), while Vancouver (2.8%) showed the biggest improvement (-120 bps).
·
Keeping
pace with demand, developers completed almost 16 msf of new industrial product
in the past year with three-quarters delivered in Toronto, Edmonton and
Vancouver.
·
More
than 10 msf is under construction – equating to only 0.5% of the existing
inventory. Only 12% of this product is
preleased, pointing to the speculative nature of development across the
country. Toronto and Vancouver account for 75% of the total industrial area
under construction.
·
Downward
pressure on asking net rental rates, especially in Calgary and Edmonton, and to
a lesser extent in Regina, helped lower the national average $0.05 per square
foot (psf) year-over-year to $8.04 psf. Despite weakness in the oil patch, the
West ($9 psf) maintains a healthy, but narrowing, spread over the East ($6.89
psf).
First-Quarter 2016 U.S.
Industrial Market Highlights:
·
The
10.6-bsf U.S. industrial market ended first-quarter 2016 with an average
vacancy rate of 5.9%, and seven of the 37 markets tracked by Avison Young
report vacancy of 4% or less. West Coast markets lead the country with the
lowest vacancy reported: San Mateo (36 msf / 2%), Orange County (218 msf /
2.2%) and powerhouse Los Angeles (1.4 bsf / 2.6%).
·
Net
U.S. absorption for the prior four quarters approached 200 msf, nearly 4%
higher than the previous reporting period and an amount roughly equal to 2% of
the total inventory. Los Angeles (27.5 msf), Chicago (23.3 msf) and Dallas
(19.7 msf) achieved the highest net absorption.
·
Despite
a faltering energy market, the rapid growth of e-commerce fulfillment and
high-tech manufacturing has been able to backfill demand – and, in many cases,
drive vacancy and rental rates to new records. The highest average asking
triple net rent in the U.S. was recorded in land-constrained San Francisco
($16.28 psf), and the markets that reported the greatest gains in rent year-over-year
were San Mateo (+$3 psf), San Francisco (+$1.74 psf), Los Angeles (+$1.56 psf),
Oakland (+$1.44 psf) and Denver (+$0.92 psf).
·
A
quality gap between existing buildings and new developments has created pent-up
demand for high-quality product. This trend is likely to continue for several
years, as industrial developers are often priced out of the rare development
sites available in primary markets.
·
Altogether,
the U.S. delivered 130 msf in the 12-month period ending March 31, 2016.
Another 136 msf is under construction with preleasing levels at 45%. Dallas and
Los Angeles each have 20.4 msf underway.
·
In
an unusual twist, tight market conditions have led some owners to begin
converting office buildings for industrial use (Long Island), while other
municipalities have begun enforcing zoning ordinance fines to ensure that
limited industrial space is not misappropriated by office tenants (San
Francisco).
Thanks for reading. For more in-depth market
analysis and commercial real estate news, visit www.avisonyoung.com.
